Sunday, May 31, 2009

Global Worming

Hugo Chávez, the Venezuelan hater of America, shaking hands with the American President? Cuban President Raúl Castro and Barack Obama exchanging words of hope for a new future relationship? The Russian and American Presidents agreeing on the danger of nuclear proliferation and vowing to work together to move in a new direction? Dare we hope?

Yeah, but then there’s North Korea testing both nukes and missiles – reopening its processing plant for fissionable material – nuclear-menace-wannabe Iran sentencing a young Iranian-American journalist to 8 years in prison for purported espionage, the Taliban capitalizing on long-standing hatred of mega-landowners in the Pakistani province of Swat, where the government has actually allowed them to substitute Islamic law for Pakistani statutes… resulting in a populist uprising that threatens the whole of Pakistan. OK, Pakistani forces have begun taking the land back, but can they contain the fundamentalism they have already validated? Word is leaking out of Israeli plans, supported by the new hardliner government, to take out Iranian nuclear processing facilities with surgical air strikes. I’m not even going into the Afghan or Iraqi wars, the Somali pirates or all those other problems on earth.

Every country on earth, every person in the world, sees the rest of the earth from their unique perspective. They often believe what they have been told, what they see through their filtration of the news (just as we get filtered), often follow their leaders’ admonitions and adhere as passionately to their faith as the most fundamental Americans hold on to theirs. When it took time to travel around the world, distance protected the status quo. Guns changed the New World almost as rapidly as the diseases the Western World brought raged through the indigenous peoples who looked on in “shock and awe.”

Global trade and instantaneous communications through cables and satellites have shoved us together uncomfortably. Economic interdependence governs our every moment. The cries of “over there!” during World War I sound strange when we realize how truly close we really are now. This is a global financial meltdown that may have begun in the U.S., but exposed weakness throughout the heavily-linked world economy. Still, “others” blame “the American system” they had chosen to follow.

Which brings me back to that “filtration” system that all news services, all governments and all religions – to one degree or another – apply to their constituents. How are we ever going to understand how to make this planet remotely “get along” when none of us sees it the same way, and so many of us believe that our perception and our rules are right, and everyone else’s are wrong – or, in a more tolerant light, okay for them, but not for us? Should Texas really secede… hey they’re serious (some of them)? Should militias gird for the “inevitable racial war”?

So here’s a preliminary play that you might find amusing. Better if you are fluent in other languages, but go online and check out the news stories originating from other countries (Canada, Ireland, UK, Australia, New Zealand, India, Pakistan, the Philippines, Hong Kong, Singapore, if you need English)… the same ones you just read in the Boston Globe or the Los Angeles Times. If you’ve read the Bible, try reading the Koran. Use your search engine and begin digging into the variety of perspectives that are open to “an inquiring mind.” We’ve gotta start somewhere.

I’m Peter Dekom, and I approve this message.

Saturday, May 30, 2009

Without Parallel

The North Korean actions of late, testing a rather large nuclear underground weapon – and then bragging about it, testing a pile of medium-range missiles that could reach Alaska – and then bragging about, openly defying U.N. resolutions and generating uniform international condemnation – and then bragging about it, have drawn a spate of theories behind this provocative act. Few actually believe that the North can believe that the missiles can actually deploy the warheads effectively, but we have been wrong so many times in underestimating their capabilities that I find little solace in this assumption.

The more general responses (prevailing “theories”) to this series of defiant and provocative acts fall within several categories: 1. There is a succession problem as reigning prelate, Kim Jong Il, seems to be of particularly bad health. He wishes to install one of his two sons in the leadership role, but the military must be placated as a precondition. Since soldiers like big bad explosive devices, reigniting the nuclear weapons program may simply be the price of admission and approval. 2. With starving people living a marginal existence, the North is a miserable and repressive place to live. Well, if the people can’t eat butter, show them your might and power, made them feel empowered in another way, and give them guns… really big guns. 3. The North is creating massive bargaining chips for future negotiations. Financial aid. Territorial guarantees. And if that doesn’t work, they can sell nuclear capacity to the highest bidder, which is perhaps the most dangerous aspect of the current testing. 4. Kim and his senior leaders want a lot more respect from the world. Notorious saber-rattlers and threat-mongers, they simply want a bigger saber and more credible threats to boost that “respect.” 5. All of the above.

The fact that there are so many theories is disturbing. It shows how the dark veil of secrecy and violent repression make the North an almost impenetrable nightmare of political and military insanity. Kim likes Western booze, movies and a touch of decadence, even as his subjects live a life which at best can be described as austere, but most would call it abject poverty. Land is handed over to powerful factions within the North to grow cash crops (including drugs) for export, even as workers in nearby towns hug the edge of starvation. Slave labor proliferates.

South Korea, still reeling from the apparent suicide, because of massive corruption charges, of a former President who had begun to forge ties to the North during his tenure, is now forced to deal with a neighbor that seems to be backing violently away from rapprochement. South Korea’s president, Lee Myung-bak, has indicated a willingness to join in an American-led effort to interdict North Korean ships in order to stop the possibility of nuclear proliferation. The North has responded: “‘We consider this a declaration of war against us,’ an unidentified North Korean military spokesman said [May 27th] in a statement carried by the North’s official news agency, KCNA. ‘Any hostile act against our peaceful vessels, including search and seizure, will be considered an unpardonable infringement on our sovereignty and we will immediately respond with a powerful military strike.’” May 27th NY Times.

These remarks have moved both South Korea and U.S. to raise their regional military alert status to the second highest level – Watchcon 2, where there is a perceived “grave threat.” Intelligence gathering, reconnaissance flights and heightened military preparedness obviously have escalated. The May 29th NY Times quoted U.S. Defense Secretary Robert Gates as he addressed an Asian security conference in Singapore: “We will not stand idly by as North Korea builds the capability to wreak destruction on any target in the region — or on us.”

While the U.S. has repeatedly said that it will not accept North Korea as a nuclear power, it is a nuclear power. For years, the U.S. wouldn’t even talk to the Koreans unless they stopped their weapons programs; Kim Jong Il merrily continued knowing he wouldn’t have to deal with American negotiators. The U.S. is sending a “reassessment” team to Asia to help plot the next political response to North Korea’s military escalation. “Mr. Gates concluded that the United States, ‘in our efforts to protect our own freedom, and that of others’ had ‘from time to time made mistakes, including at times being arrogant in dealing with others.’” May 29th NY Times.

Recent naval skirmishes between North and South in the last year have underscored the deteriorating situation in the region, and the North went one giant step farther with this additional note: “[T]hey ‘no longer feel bound by the armistice’ that ended the fighting in the 1950-53 Korean War. Technically, the two Koreas have remained at war for more than 50 years, because the 1953 armistice never gave way to a final peace treaty. North Korea has previously called the 1953 armistice a ‘useless piece of paper.’” May 27th NY Times. In short, we’ve pretty much fallen short on our military intelligence on Kim’s efforts (it really is a tough isolated and insular country to crack) and have been completely ineffective in confronting that menace.

The image of the New York Philharmonic playing in North Korea at the end of February shows exactly how bad the situation has become since then. But the fact that we do not have a clear understanding of North Korea’s underlying rational makes me worry that whatever our response might me could be wide of the mark. But we will respond.

I’m Peter Dekom, and I approve this message.

Friday, May 29, 2009

The Third Wave

It’s obviously all linked: the credit freeze, unemployment, consumer’s tightening up on spending, the stock market, the stimulus package, borrowing your way out of depression, California-like state deficits, the declining dollar and the foreclosure crisis. The government makes up for slacking consumer demand by becoming the “buyer of last resort,” but since employment is a trailing economic indicator, a double-digit jobless rate threatens to carry way into, if not all the way through 2010.

And that gives rise to what real estate experts call the “third wave” in this litany of residential housing foreclosures, which doesn’t even begin to address much anticipated hit to commercial real estate values. The first wave is attributed to the exceptionally unrealistic subprime mortgage failures – people buying artificially inflated homes with no real money down, many with false income statements, and no way to make the monthly payments.

The second wave was the overall hit to the residential real estate market as people realized that overall values were inflated because of pressure from these subprimes that rippled right on up through the system and as teaser rates that suddenly skyrocketed to become up to unaffordable monthly nuts. All of these realities further weakened the financial institutions that provided the loans, the aggregators who bundled such loans into packages of derivatives and the investors, mostly financial institutions who bought these instruments as “investments.”

But losing your job is seriously bad news for someone trying to make monthly mortgage payments, particularly for those who bought real estate over the last few years. The May 25th New York Times: “‘We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.’ … Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis… expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year… Among prime borrowers, foreclosure rates have been growing fastest in states with particularly high unemployment. In California, for example, the unemployment rate rose to 11.2 percent from 6.4 percent for the year that ended in March, while the foreclosure rate for prime mortgages nearly tripled, reaching 1.81 percent.”

There is no way that the government programs are going to stem much of this tide. Mortgage “resets” based on government incentives have been minuscule relative to the scope of the overall problem. With over 4 million loans in the “distressed” categories, as foreclosures continue to rise, the fact remains that only tens of thousands have benefited to date from federal programs that encourage principal and interest re negotiations.

In short, things are going to get a lot worse before they get remotely better. The “stress tests” administered to our 19 biggest banks was in part intended to address what this third wave of foreclosures will do to these financial institutions if double digit unemployment sustains well into the future. But were those tests “negotiated” results based on banks clamoring for better treatment, and will financial reality tank those projections? And exactly how do these financial barometers augur for an “unfreeze” in the credit markets, which experts tell us is a main component of any real shot at stabilizing employment numbers in this country?

I’m Peter Dekom, and I approve this message.

Thursday, May 28, 2009

That’s Hitting Below the Border

Let’s see… gang lords are dueling with “Los Federales” as well as the local cops (at least the ones they haven’t bought off yet), mostly using arms “imported” from the U.S., to insure the safe passage of drugs through Mexico to its biggest, baddest buyer (the U.S.); the violence across the nation wasn’t bad enough so they made sure that outbreaks of A/H1N1 flu (swine time) kept hotel occupancy in resort towns to ghost town levels; one fifth of the Mexican economy was generated by hot manufacturing demand from Mexico’s friendly neighbor to the north – but consumer demand is hemorrhaging red ink in this country; and Mexico’s economy makes even California look good!

The numbers get downright nasty. If we compare first quarter performance (GDP change, 2008 to 2009) as did the Wall Street Journal in their warm and fuzzy WORLD ECONOMIES PLUMMET headline on May 21st, we can see that the U.S. sucks with a 6.3% contraction, Germany is flailing with a 14.4% downfall, Japan jerks desperately down with a 15.2% drop and then there is Mexico… oh my God, there is Mexico… a 21.5% plunge off the cliff (and we’re not talking pearl divers!). They recently even had to withdraw a governmental bond issue from the international market (they run a deficit too) when there were almost no takers.

Tourists? Not even swine tourists? Revenues from this critical sector, its third biggest market segment (employing 2 million people), were $13 billion last year… $9 billion in 2009 if they’re lucky. Last year at this time, hotel occupancy was at a healthy 74%, and now it’s an “echo-in-the-halls” 29%!

Mexico was “blessed” with being a large vendor-manufacturer to the American automakers… how nice. Just visualize the factories and the workers down there with a 41% decline in orders. Yes, Mexico is a major oil producer, and yes, oil prices recently crossed the $60 marker on their way up. But while the big fall in the price of oil has hurt our love-buddies, Iran and Venezuela (hey Mahmoud and Hugo!), it also tanked (sorry) Mexico ’s economy down to yet another grungy level.

Mexico ’s rich families are not really very good at paying taxes, so that nation has pretty much squeezed off every (government owned) oil dollar they could … not reinvesting money in deteriorating equipment or upgrading their drilling technology. When the oil money comes in, there is so much need at every level for every dollar that this equipment may fail, sequentially, at a critical time in Mexico ’s future and most certainly will result in vastly reduced output at a minimum.

Okay, there are lots of countries out there much worse off than Mexico – large chunks of Eastern Europe for example – but the big difference is that Mexico is on our border. Their problems are, like it or not, our problems. China, India, Brazil… there’s real growth in them thar hills… in Mexico, there is a sad reality that if American spending habits do not resume to pre-meltdown levels soon (and remember, this has been what many believe is a permanent “reset” with U.S. unemployment expected to linger all the way through 2010), Mexico is looking “bleak” in an ugly staredown. Must be comforting for Mexicans living in Baja California that their neighboring state to the north is also having a really bad time.

I’m Peter Dekom, and we can go back to feeling sorry for ourselves now.

Wednesday, May 27, 2009

Running Out of Time

A while ago, I blogged about “Waitin’ fer the Boss to Die,” because older Americans lucky enough to have jobs, whose pension accounts and corporate retirement plans have been decimated by the current economic implosion, are postponing their retirement by an average of 8 years; according to a December poll sponsored by CareerBuilder, 60% of American workers over 60 expect to delay retirement. Some have noted that retirement is not an option at all.

Those earlier blogs provided that all those older corporate workers would create a bottleneck at the top, and as far as traditional big company opportunities go, this would create a slowing down of fresh blood into vacancies as the old guys retired. Further, collective bargaining agreements tend to protect those who have seniority, so when layoffs are necessary, younger union workers tend to be the most vulnerable.

There are a few obvious benefits to society of older workers remaining in the job force: forcing younger people to strike out on their own, creating new companies and thus new jobs along the way, and older people having more money to spend for a longer period of time in their lives – good for the economy. With the growing trend of “independent contractors” (without healthcare or company retirement benefits) replacing an employment based workforce, the future of how we earn money and then provide for retirement is most certainly changing dramatically.

But there is another harsh reality for those older workers who lost their jobs in this managed depression and have literally run out of options for finding suitable replacement work… even for those who really do not have private pensions or sufficient retirement savings, whose personal savings have been decimated in the market crash. The May 24th Los Angeles Times: “Once they lose their jobs, older workers have a harder time finding new ones. On average, it takes laid-off workers 55 and older nearly a month longer than their younger counterparts to find new employment, and the gulf has been growing recently, according to the U.S. Bureau of Labor Statistics.” Even when the economy turns around, this segment of the work force is the least likely to resume their past earning power or even get a job at all.

So what do these older workers who have lost their jobs doing? They are opting to trigger Social Security retirement benefits in record numbers, even at age 62, where the benefits as much as a quarter less than waiting until age 66 to request such payments. Survivors’ benefits, such as the widows/widowers of Social Security recipients, can get as much as a 30% reduction in benefits with the primary beneficiary dies.

The LA Times: “Since the current federal fiscal year began Oct. 1, claims have been running 25% ahead of last year, compared with the 15% increase that had been projected as the post-World War II generation reaches eligibility for early retirement, according to Stephen C. Goss, chief actuary for the Social Security Administration.” With threats that both Medicare and Social Security are seriously underfunded (described in detail in earlier blogs), and with so many Baby Boomers over 60 now, the strains on the system are beginning to show some major cracks. Tom Raum, writing for the Associated Press on May 24th: “Federal overseers said this month that the Medicare fund will be depleted in 2017, just eight years from now and two years earlier than estimated just a year ago. The Social Security trust fund will be exhausted in 2037, four years earlier than predicted a year ago.’”

The vaporization of residential real estate values (once known as America’s savings account), combined with stunning job loss, collapsed retirement savings and an eroding tax base, may result in a change from what was once thought to be the “golden years” into a painful struggle for millions of people who never expected this minimalist existence to be the way they would spend the last years of their lives. As life expectancies rise, many elderly will easily outlive what they and the world have set aside to provide for their retirement.

One way or another, whether through a larger contribution from families to support the parents or grandparents or by means of government action, this is one problem that will only get worse. Or we could simply let them die, as so many biographies say, “penniless” in some non-descript flophouse or back alley.

I’m Peter Dekom, and I’m not retiring anytime soon… if ever.

Tuesday, May 26, 2009

Through Iranian Eyes

We believe that Iran can be bought into line – to dissemble its growing nuclear weapons capability (if it really exists) – under a combination of global pressure and military threat. Dialog with Iranian leaders is supposed to make that message clear and create an environment where compliance is an attractive invitation to take a seat alongside the “responsible” nations to support worldwide peace and stability.

While the large Iranian middle class may indeed indentify with those goals and Western values, the government isn’t going away any time soon; their power is firmly entrenched, albeit with the threat of force. Indeed, according to a recent Rand study commissioned by the U.S. Air Force, factions within the Iran’s military and even within the religious and political communities (as well as in neighboring states) make Iran feel particularly vulnerable from within and outside of its borders. But they are not stepping up to respond positively to the American proposals? Why?

First and foremost, a reality to Sunni and Shiite powers alike (Iran is a Shiite power, which, until recently, has been viewed very hostilely by Sunnis), that despite their oil riches (and the price of oil is rising again), the Western world looks at them as second rate “rag-heads” – Arab and Persian no matter – and still see camels, Bedouin tents and veiled and dark-wrapped women. We read of the brutality of the religious police, stoning, whipping and what we describe as the trappings of a primitive and tribal society. We don’t see the ultra-modern buildings and the functioning side of a modern society with tribal roots.

This region watched for 400 years during the life of and after the death of their Prophet Muhammad as the Islamic world pummeled Europe very successfully before an historically short 119 years of a Crusader counter-attack. They remember book-burnings in Europe during the Middle Ages as Muslim libraries preserved Western culture and heritage, as their scientists invented modern mathematics and geography. History and complacency trashed that glory in the 1800s, just as the West exploded to new levels with the Industrial Revolution.

Humiliation is a powerful recruiting tool. Iran’s leaders have used the return of the Islamic world to the glory days as their abiding mission. Whether it is the shameless support of Shiite Hezbollah, the vehement threats to destroy Israel in a short devastating attack or support of a once enemy, Sunni Hamas, Iran has risen in stature in the region by pursuing the very policy of aggressive arrogance that America wishes to stop. They just haven’t risen as fast as they had hoped; they still see a world full of threats.

For those who remember our sustained “Cold War” against Communist China and Soviet Union – fearing the same fears, hearing the same threats (albeit directed to other nations, even the United States – you may remember or have studied Nikita Khrushchev’s famous 1960 “we will bury you” speech – “Мы вас похороним! – at the United Nations as he banged his shoe on the desk), think at how U.S. containment and threats worked there. The regimes changed or toppled from within, not through our efforts.

A large number of Israelis say they would leave their country if Iran’s nuclear weapon program is sufficiently developed without some tangible destruction. And Iran’s stature rises with every such statement. As Hamas rockets supplied by Iran rained down on Israel, Iran’s regional stature rose in the region. Her rippling muscles gleam in the hot spring sun, even as the decline of oil revenues (they are on the rise however) have modified their financial capacity. As hostile Hamas suggests that there is a path to peace over Palestine, and as Israeli hardliners counter with a formal acknowledgement of Israel as the Jewish state (a clear rejection of Hamas) and security in the region (Iran’s stopping its nuclear program), Iran basks in the glory of her military might. But her insecurity still shows.

With America very much still funding efforts begun during the Bush administration to destabilize the Iranian government and provide support for her enemies, both within and outside of her borders, statements of a desire for dialog by the Obama administration are met with skeptical shrugs and demands to see evidence equality and reciprocity by the Tehran’s government. With the possibility of an Israeli preemptive surgical airstrike against Iran’s nuclear processing plants, Iran responds with a test of a medium range, solid fuel missile, easily capable of reaching Israeli targets. As the Obama administration poses deadlines for progress in nuclear disarmament talks with Iran, Tehran has yet another defiant act ready to boost its regional stature. Or does it?

Does Iran even want nuclear weapons? Saying “Iranians aren't suicidal,” Newsweek’s Farid Zakaria (June 1st issue) argues there’s even a chance that Iranian leaders simply want nuclear energy: “[O]ver the last five years, senior Iranian officials at every level have repeatedly asserted that they do not intend to build nuclear weapons. President Mahmoud Ahmadinejad has quoted the regime's founding father, Ayatollah Ruhollah Khomeini, who asserted that such weapons were ‘un-Islamic.’ The country's Supreme Leader, Ayatollah Ali Khamenei, issued a fatwa in 2004 describing the use of nuclear weapons as immoral.” Whom do you believe?

The willingness of the rest of the world to boycott Iran and impose remotely effective sanctions as the U.S. might desire is significantly less than it was before the big meltdown. A hardliner statement during her campaign that she would consider an act that would “obliterate” Iran if deemed necessary and the mere fact that she is a woman, make Secretary of State Hillary Clinton an unlikely peace-maker with Iran’s power infrastructure, and Department of State Iran-specialist, Dennis Ross, “engagement with pressure” strategy is seen as particularly distasteful to Tehran.

So that gives the Obama administration an exceptionally difficult conundrum. If dialog does not work, if Iran’s leadership does back off its right to enrich uranium (look at North Korea’s defiant nuclear test on May 24th), if the world’s willingness to impose real sanctions doesn’t rise above watered-down “symbolism,” what exactly do we do? How certain are we there will be nuclear weapons? If Israel strikes Iran with an aerial attack, where will that take American policy? Does Pakistan begin a new program of making sure Muslim allies get the nuclear weapons even faster than they can develop them internally? Will North Korean sell them such weapons anyway? Does the price oil of inject a crippling spike into this global financial mess? Will that bring Europe to her knees? Are we in a new Cold War that can turn very hot in an instant? Make no mistake, Iran is not a trustworthy “ally” no matter what the rapprochement. They are definitely not “friendship” material. If you’re confused, welcome to Washington, D.C., city that makes its living out of confusion!

I’m Peter Dekom, and I wonder too.

Monday, May 25, 2009

A Private Matter

What many consider ideal: unless you are a public figure of major proportions or you voluntarily release your personal information to the world, you have a right to privacy in your personal information. What’s real: forgetaboutit! Here’s a partial list: warrantless wiretaps, “what goes on the Web stays on the Web,” the very-hard-to erase hard drive, colleges reading applicants’ home page entries, consumer tracking systems, refined search engines, social networks, public information or information generated by hackers.

Whether its the 1/3 of American teens who have seen inappropriate pictures or videos of their friend and acquaintances or the 20% who have sent such images (“sexting”), that little “discount card” you use at the grocery store, information and pictures about you that are posted (often by others) on your social network page, your application for a credit card, the credit rating agencies or that thick “virtual file” about you that might sit in some FBI computer because your name is similar to a suspect’s name, there is almost nothing that cannot be found out about you with a little digging.

From the pragmatic – retailers trying to figure out how to bring “stuff” to your attention that you might be interested in – to the illegal – hackers wanting to sell your credit card numbers for illicit activity, there is virtually no privacy in a modern society. It’s worse than the proverbial small town where everybody knows everybody else’s business. We even ask the silly question, “Have you Googled yourself?”

As the same Congress that authorized both the warrantless wiretaps as well as the Children’s Online Privacy Protection Act struggles to find a statutory solution to privacy and to address the elusive statutory solution to content piracy, I’m seeing an awful lot of smoke drifting out of a lot of bottles. But harvesting consumer information is a huge driver of business, and in an impaired economy, we most certainly don’t want to harm businesses in their marketing efforts. That’s the view of many conservative leaders, elected representatives and even some in the U.S. Supreme Court. Earlier this year, Justice Antonin Scalia seemed to question the need for more personal privacy protection.

That’s where the fun actually started. As summarized in a report published in the American Bar Association’s ABA Journal on April 29th, it seems that one Fordham Law School class, taught by Joel Reidenberg (who had earlier turned the Internet camera on himself), got to learn about Mr. Scalia, to his consternation, “up close and personal.” The class was assigned to delve into the Scalia family’s personal life, all legally-available information, and report their findings. They turned up a home address, phone numbers, grocery lists, his wife’s personal email address, pictures of his grandkids and even his movie preferences.

Mr. Justice Scalia was not amused: “‘Professor Reidenberg's exercise is an example of perfectly legal, abominably poor judgment. Since he was not teaching a course in judgment, I presume he felt no responsibility to display any,’ the justice says, among other comments... In response, Reidenberg tells the ABA Journal that the information gathered by his class about Scalia was all ‘publicly available, for free,’ and wasn't posted on the Internet by the class or otherwise further publicized. He views the dossier-gathering about a public figure as a legitimate classroom exercise intended to spark discussion about privacy law, and says he and the class didn't intend to offend Scalia.” ABA Journal.

The May 21st, noting the abundance of cell-phone-photos being poured on to the Internet, summarized our plight this way: “We leave digital footprints everywhere we go, and those footprints are becoming easier and easier to track. Although many of us believe that sunlight is the best disinfectant, and that transparency is generally a good thing for a society, the lack of control over what you reveal about yourself is often troubling. The ease with which abundant personal info can be used for (e.g.) identity theft creates a situation where we have many of the dilemmas of transparency without enough of the benefit.”

Increasingly, despite all of the negative press and a few teen suicides along the way, young people apparently don’t even have an expectation of privacy anymore. They often learn the hard way that the mistakes of a teenager can later impact the career of a young executive. It’s tough out there, but for those not in that younger, accepting demographic, the belief that privacy is a fundamental right dies hard, very hard.

I’m Peter Dekom, and I thought you might want to know.

Sunday, May 24, 2009


In a severe recession or a depression, “deflation” – the fall of prices – is often one of the consequences. While prices fall, making goods and services cheaper for those with the ability to buy, the reason for this decline is a reduction in consumer demand precisely because people can’t afford to buy or are clinging to their dollars out of fear because of a contracting economics. High unemployment, a credit freeze, market uncertainty, a horrible housing market and the worst GDP (“gross domestic product” – America’s “output”) contraction since The Great Depression are the drivers of the current “depression” of the cost of goods and services and the erosion of the tax base that supports government activity (look at California as an extreme American example). But with that reduction in cost comes a lack of consumer demand that sustains unemployment, GDP contraction, and a bad housing market, which in turn fuels market uncertainty. A vicious circle.

So to stimulate the economy, to break that circle and to replace the missing “consumer demand” and “restart” the economy, Washington has passed the huge stimulus bill that has the right and left arguing over “socialism” versus “free market, let the chips fall where they may.” The Democrats argue that those desiring “free market” adjustment are the same Republicans who deregulated the economy to create this mess in the first place, and the Republicans (including those who voted for President Bush’s TARP stimulus package) point to the huge deficits and the borrowings that are necessary to finance the stimulus package; they fear inflation. Who’s right?

Strangely, they both are. First, there is no clear “right answer.” Whatever path is taken will be very uncomfortable for a very long time. Most mainstream economists place restarting the economy as a priority above avoiding massive deficits, and this really is a “red alert” emergency (like a war) no matter how you look at the situation. The stimulus package (which actually may be inadequate!) will takes years to move the economy into the “acceptable” range, but proponents say this is better than the decades of damage expected in an unregulated free market free fall adjustment.

The Republican point, focusing on the impact of excessive borrowings, is that inflation – serious double digit inflation – is the probably consequence of massive deficits. And as the dollar declines, at it clearly seems to be doing, selling our national debt instruments … indeed the very status of the dollar remaining as the global currency… become problematical. While some European nations are incurring massive deficits as well, in the most recent few decades, Europe’s sustained willingness to tax its businesses and citizens at vastly higher rates than the U.S. (in part to support social safety nets and healthcare) provides a much better cushion against inflation (they can actually pay their borrowings down faster because they have more government money to do that).

American policies over the past years have been driven by huge pre-meltdown spending (the Iraq and Afghanistan wars) with massive tax cuts, mostly favoring those in the highest income brackets. With U.S. taxes relatively lower than most of the Western world, we have been more reliant on deficit spending to support our ways – living above our means. But financing a deficit by selling long term treasury bills into the global marketplace with a sinking currency means that we have to pay increasingly higher rates of interest (which increases our federal budget by the higher debt service) to attract buyers for our bonds. While some have suggested that inflation is more likely later in the cycle when flattening out (and perhaps even slight recovery) begins, evidence in the markets tells us that the road to higher inflation is already here. The handwriting is on the wall.

The U.S. dollar has slipped to five month lows against the British pound and the Euro. The May 23rd New York Times: “Crude oil futures rose above $60 a barrel this week, and gasoline prices climbed to a nationwide average of $2.39 a gallon, according to AAA, the automobile club. The price of gold — a hedge against inflation — rose to nearly $960 an ounce, its highest price in two months, and investors also raised the prices of copper, wheat and corn… Interest rates were higher. The Treasury’s benchmark 10-year note fell 22/32, to 97 9/32, and the yield, which moves in the opposite direction from the price, was at 3.45 percent, up from 3.36 percent [on May 21st].”

The problem with inflation hitting the U.S. so early in the period of adding stimulus dollars to our markets is that we don’t stop the deflation, but the dollar is still falling – stagflation – the government has, to date, specifically committed well less than 10% of the huge American Recovery and Reinvestment Act stimulus approved by Congress and signed by the President months ago. This early fall in the dollar and concomitant rise in the cost of our borrowings and commodities means that the government may have to continue subsidize American interest rates by keeping the rate at which banks borrow from the Federal Reserve fairly low (which also depresses the value of the dollar; hard to invest in a country when you get a low interest rate return) while borrowing that same money in global markets at higher rates.

The bottom line is that the complexity blending of economic variables suggests that our hitting bottom will take longer and recovery will be slower and intermittent; Americans will probably have to deal with rising prices and expensive money in the future – perhaps even double digit inflation as we saw in the late 1970s. There are no absolutes, no certainties, just trends. Political reality, new economic chaos from any part of the globe, conflicts and instability shifts (particularly in the Middle East or Pakistan/Afghanistan), natural disasters and changes in consumer perception can alter the best projections of the most qualified economists. It just helps to understand the pieces, even a little bit at time. Complexity yields to understanding when the bits of information are digested a little at a time.

I’m Peter Dekom, and I approve this message.

Saturday, May 23, 2009

Adding Insult to India

The litany of nuclear horribles is known to most Americans, although they may be short on specifics. A few remember that we never located a hydrogen bomb that a bomber was forced to ditch after a mid-air collision off the Georgia coast in 1958, but most of us are aware of a cache of nuclear weapons in Pakistan, 70 to 100 warheads at last guestimates, sitting squarely in the sights of Taliban militants dedicated to the destruction of Israel… and the United States.

The legendary Dr. A.Q. Khan, Pakistan’s “father of nuclear weapons,” made sure that the capabilities for the “Muslim bomb” were spread around the second and third world. North Korea’s test blasts were germinated with Khan’s design help, and Iran’s entire nuclear program was born of Khan’s engineering assistance.

Israel’s hardline Prime Minister, Benjamin Netanyahu, recently visited Washington; clearly the accumulation of nuclear weapons, particularly the Iranian threat, threatens to undermine President Obama’s commitment to a separate Palestinian state, but the President also made it clear that there was a timeline on seeing progress in defusing Tehran. As reported in earlier blog, as preconditions to a “Palestinian” solution, Israel’s demands for recognition of Israel as a legitimate Jewish state make an accommodation with existing Palestinian authorities, notably the vehemently anti-Israel Hamas faction, seemingly impossible. But the biggest sticking point is obviously Israel’s demand for “security” in the region, a hardly disguised statement that a nuclear weapon in Iran, a nation that has pledge to destroy Israel, is simply untenable. A single nuclear strike on Tel Aviv effectively destroys the entire country. A preemptive strike by Israel against Iran increases in probability as the rhetoric escalated.

This note, appearing in the May 20th Washington Post, makes the “nuclear proliferation” issue in the Middle East even worse: “[Iranian] President Mahmoud Ahmadinejad said Iran test-fired a new advanced missile [May 20th – a newer, solid fuel weapon] with a range of about 1,200 miles, far enough to strike Israel, southeastern Europe and U.S. bases in the Middle East.” If Iran does not already have a nuclear warhead, they have to be very close to completing that mission. Is Pakistan’s military or intelligence operation still active in aiding Iran’s nuclear efforts? As Iranian officials continually call for the destruction of Israel, there are chills going down the backs of government officials everywhere as Iran’s nuclear delivery systems are being perfected, missiles which are much more easily hidden than nuclear processing plants.

As Russia and the United States speak of reducing nuclear weapons around the world, the opposite seems to be happening in many of the smaller nuclear powers and nuclear-wannabees. And strangely enough, with a civil war raging within the country, Pakistan appears to be increasing its weapons-grade nuclear fuel-making capacity and actually building more warheads. The worst part of this story, a stated in a May 18th NY Times article, is that Pakistan may be using money from the U.S., geared to fight local fundamentalist terrorism, to fund the nuclear-expansion effort. Confirmation of that extraordinary fact came from Joint Chiefs’ Chairman Admiral Mike Mullen in private Congressional briefings and direct testimony in a U.S. Senate hearing.

The genesis of Pakistan’s nuclear program is mired in their on-again, off-again, conflict with neighboring India (also a nuclear power) over the future of disputed territory – India’s Kashmir (with a large Muslim population – Pakistan’s population is mostly Muslim, and India’s Hindu… a result of partition when the two nations were created 60 years ago). But why does Pakistan need so many new weapons? Surely, they have more than enough nuclear power to deal with India, a nation that seems to have absolutely no intention of loosing its nukes on Pakistan.

Further, the only real current military threats to Pakistan are from within. The May 23rd Los Angeles Times: “In Islamabad, the Pakistani capital, military spokesman Maj. Gen. Athar Abbas said 1,095 militants had been killed during the offensive and 29 captured… Mingora [in Pakistan’s Swat Valley], however, poses a severe challenge for Pakistani troops, who face Taliban fighters deeply embedded in an urban environment and reliant on mines, fortifications and hidden weapons caches to fend off the offensive. The fight will also be complicated by the presence of as many as 20,000 civilians who remained behind after the rest of the city's population of 375,000 fled.”

Even with statistics like this, with horrible civilian casualties, most Pakistanis are actually suspicious of doing anything that smacks of following the U.S. anti-terrorism line; India, to them, is the only genuine menace they need to be concerned about. It’s just how they were raised and how they still feel, facts to the contrary notwithstanding, something even President Obama finds hard to believe.

The fact that Pakistan never signed the Nuclear Non-Proliferation Treaty (India and Israel are also non-signatories), coupled with Pakistan’s history of sharing nuclear technology with malevolent powers, is discomfiting to say the least. Is their ability to provide technical support to nuclear wannabees a bargaining chip Pakistan’s leaders are willing to trade with powerful Arab nations in exchange for support for their incumbency? Are Taliban sympathizers within the Pakistani government and military preparing an arsenal for the terrorists themselves? Are the Pakistanis so obsessed defending against a mythical Indian nuclear attack that they are blind to the fundamentalist damage in their own back yard?

While the last U.S. administration turned a blind eye as to how Pakistan’s leadership was deploying American foreign aid, concerns have elevated in this administration and this Congress as we consider how to extinguish the Taliban militancy in neighboring Afghanistan and how to keep that militancy from toppling Pakistan and taking over that nuclear stockpile. The last thing America needs is a diversion of anti-terrorism efforts, funded with U.S. dollars, into making the nuclear nightmare so much worse.

Pakistan will resist any American attempt to tie nuclear arms limitations to American military aid, and yet suppression of the Taliban militancy in Pakistan is a necessary part of our effort to stabilize Afghanistan – it is doubtful that we would have the remotest chance without that cross-border effort. Chairman of the Senate Armed Services Committee, Michigan’s Carl Levin, noted: “Unless Pakistan’s leaders commit, in deeds and words, their country’s armed forces and security personnel to eliminating the threat from militant extremists, and unless they make it clear that they are doing so, for the sake of their own future, then no amount of assistance will be effective.” Committee member, Virginia’s Jim Webb, expressed his “enormous concern” at this turn of events.

At this moment of global financial chaos, the single largest threat on this planet to life itself is probably the future of Pakistan’s nuclear weapons and the programs, like that in Iran, which Pakistan has spawned. Failure to solve these horrific issues is simply not acceptable. If ever there were a number one priority for America, even ahead of economic recovery, this defeat of nuclear proliferation to nations and cultures that seem quite willing to deploy the weapons against their “enemies,” has got to be it.

I’m Peter Dekom, and I am as scared as you are about this.

Friday, May 22, 2009

California or Bust!

Let’s face it, now you can get both. As the rest of the country looks on with a smirk – those crazy left-coasters, God is punishing them – California’s temporary budget, passed in February, is now kaput, because it was dependent on a set of budget-driven propositions passing. They went down in glorious flames on May 19th. And anyway, we have wildfire and earthquakes; God has already punished us.

Staring down the double barrel of a $21.3 billion shortfall-shotgun, profoundly worse because the economy has eroded the state’s tax base, Governor Arnold Schwarzenegger is groveling at the feet of the feds for billions of bailout money. Looks like poor kids don’t get medical coverage, abused women are on their own, ordinary kids get an even worse-than-terrible education (we’ll all pay for that later!), lots of felons get a get-out-of-jail free card to reduce prison costs, courts will close, programs terminated… I can hear the laughter from the rest of the country now.

California is huge (38 million residents), massive and ungovernable. Ballot initiatives have created a “citizen-controlled” government where what would be traditionally legislative functions have been taken over by the electorate, usually reacting in a rage to an appropriate rabble-rouser (think Howard Jarvis and the famous “Proposition 13” that capped property taxes)… and… oh... yeah, that 2/3 vote required for passing a budget. You might say that Californians are punishing themselves.

So after decades of Republican-Democratic conspiracies to gerrymander incumbents to remain in office, the state is frayed by the fringe of both parties (with disproportionate power which they use at budget time to push their favorite programs through). Fortunately, the Governator managed to push through a voter-supported independent panel to set the boundaries now, so that problem is going away in the near future. But the budget of a state with a disproportionate share of undocumented aliens (and the state social cost that go with that reality) really didn’t need to run out of money.

And trust me, if California goes south, no matter how hard the rest of the country is laughing, you really can’t bailout the automakers, the big banks and insurance companies and let about 13% of the total U.S. population slide out of the U.S. economy. Chapter 9 (bankruptcies for entities that are less than the whole state, e.g., municipalities) will shift an even bigger burden to the federal government if large sub-sections of California go under. And think of all those uneducated children we can send to work in other states!

There is a solution down the road, and the Governator is definitely pressing for this solution (which, believe or not, requires another ballot initiative): a California constitutional convention. I liked looking at how the New York Times looked at this mess (May 20th): “The last time California held a constitutional convention was in 1878-79 when the state’s founding constitution was rewritten, though a state commission made revisions to the document in the 1960s and 1970s… ‘The majority of Californians say the state is headed in the wrong direction,’ said Mark Baldassare, the president of the Public Policy Institute of California, a nonpartisan polling organization. In a March poll of 2,004 residents, two-thirds said the Constitution should be altered, Mr. Baldassare said… ‘I think that we could be at a crossroads here,’ Mr. Baldassare said. ‘People in California don’t feel they have the government we need in the 21st century.’”

Taxpayers are reluctant to expand the bailout, and the Obama administration is reacting with extreme caution. The May 22nd Los Angeles Times: “California needs to solve its financial crisis by itself and should not expect an emergency bailout from the White House, an array of Obama administration officials said [May 21st], making clear they had no appetite to step in and provide financial assistance or loan guarantees… ‘Look, we're going to examine what we can do. What we need to do, however, is to treat states fairly and that means uniformly,’ David Axelrod, senior advisor to the president, said in an interview. ‘Whatever we do for one state, there will be other states who also will want to do that. And there’s a limit to what the government can do.’”

Borrowing money isn’t much of a palliative either. The May 22nd LA Times: [State Treasurer Bill Lockyer] and … Controller John Chiang told the 10-person joint [California] legislative committee that the state likely will have to limit its borrowing to $10 billion or less because of the wariness of post-meltdown credit markets and the state’s precarious fiscal straits.] In short, we’re screwed, and with the threat of a further economic decline as the year unwinds, we could even get super-screwed!

If the state serially begins to file Chapter 9 bankruptcies for various governmental divisions, the feds will be brought in anyway to deal with the mess in a profoundly more expensive and disastrous way than dealing with the crisis pending calling a state constitutional convention. Can you see federal troops replacing fire fighters and police? Well New York, and everybody else, remember, California’s financial problems, Michigan’s auto-making industrial collapse, New York’s Wall Street fall, Texas, Florida and Louisiana’s hurricane damage, Iowa’s flooding… well you get it… We are all in this mess together. On three, pull … one, two, three!

I’m Peter Dekom, and I live here!

Thursday, May 21, 2009

The Sound of Falling Shoes

You raved about The Subprime Mortgage Debacle, you found the The Credit Default Swap that Ate New York compelling, critics trashed My Bonus is Bigger than Your Bailout, you’re curious about The Little Credit Card that Couldn’t, but now you can’t wait for the premiere of I Want to be a “Commercial Real Estate” Loan! And the best line in all of these films is, of course, the line at the unemployment office.

19 of our largest banks “passed” the government’s stress test… okay, a few of them still have to raise enough capital to fund a small army (I wonder exactly how much of that will be taxpayer money), but we can’t get picky anymore. And yeah, those banks could face a massive $599 billion if this economy slides into a worst-case zone, but the capital shortfalls needed to deal with potential are viewed as “manageable.” We need to keep ‘em around. After all, these stud-muffin banks with exceptionally well-compensated executives, account for 70% of the bank lending in this country, so killing a few of these and letting them fail is a bit like fixing the trigger mechanism of a loaded gun with the barrel stuck in your mouth. No, blackmail is never pretty.

But we’ve got well over 8,000 banks in this country (we lost 33 so far this year; 58 since January 2008), and these all-encompassing “stress tests” aren’t going to be applied across the board to the lower tier (I know, bad choice of words) of these lenders. So the Wall Street Journal, noting that the next shoe to drop, particularly as the unemployment numbers continue to rise, is probably commercial real estate. The lead story in their March 19th paper starts out with a heart-warming: “Commercial real-estate loans could generate losses of $100 billion by the end of next year [next year?!] at more than 900 small and mid-sized U.S. banks if the economy’s woes deepen…” They’re deepening, by the way. How much, nobody really knows.

We already know the big retail malls have tanked, but there is plenty of other business-oriented land use, from factories to office buildings to apartment complexes to hotels, etc., that clearly faces a “readjustment.” And that market sector appears to have been the main focus of economic activity of the small and medium-sized banks. And so many of this nation’s small business lending activities, receivable financing, capital for growth (working capital), etc. come from this “less-than-huge-banks” segment of the financial industry. Destroy this market, and watch small businesses squirm even more, laying off even more employees to cover an impossible financial future.

As so many newspapers struggle to find a path to survival, the Rupert Murdoch’s Wall Street Journal decided to provide its readers with “something special’ (my words). They did their own little “stress test” applying basically the same parameters the feds applied to the big banks, based on the publicly available material on 940 of the remaining banks. Their not-so-rosy conclusions? If the losses on home loans are so far on the order of $50 billion, the Journal believes, total losses at the banks they looked at could total $200+ billion by the end of next year – most of that from commercial real estate loans. Basically, that would put about 1/3 of our banks in financial peril and would probably create a scenario where 600 more banks would fail and be “handled” by the FDIC (which is probably going to raise bank fees significantly to cover expected future losses).

Okay, what does all this tell us? First, it means this credit freeze, particularly at the small business level, is going to be around a lot longer than most of us believe. Second, without small business credit, our unemployment picture will continue to decline, and when it finally hits bottom, new hires are not exactly going to be returning to work particularly quickly. While the official “big bank” stress test by the feds may result in larger companies accessing the credit markets sooner, and given the way Wall Street works, other financial debt alternatives are available for big public companies, the unofficial reality at the lower levels of lending reflects this harsh current reality: “Big companies are rushing to issue stocks and bonds to suddenly hungry investors. But credit is still scarce for thousands of smaller companies that rely on bank lending.” (WSJ, Page B1). In short, credit for small businesses is tighter today than it was when the government sought to unfreeze the credit markets with TARP money last year!

While Bill McConnell, writing for the May 19th thinks that smaller banks need to be really coming to grips with their own realities, he thinks the dire predictions in the Journal are too extreme: Commercial real estate and C&I [commercial & industrial] are the other shoes many have been waiting to drop on the banking industry following the collapse of the housing market… And, according to the Fed, delinquency rates are rising significantly on commercial real estate and C&I loans at smaller and regional banks, but they are booking failure at a slower pace.”

Smaller banks are having trouble accessing investors and depositors in this impaired marketplace, so their tools to recovery are more limited. Bottom line: a credit freeze = high unemployment; they are inextricably linked. Because these issues are so complex and paying blackmailers appears to be a part of the process, ordinary citizens are angry at the banks and angrier at the government for helping them. “Let ‘em fail,” they cry. They might be even angrier if the credit freeze got colder and the unemployment statistics began to look more like a great big “D”epression. It’s all ugly.

I’m Peter Dekom, and I continue to shake my head in disbelief!

Wednesday, May 20, 2009


Are you one of those customers who pays your credit card bill on time, doesn’t roll with a minimum balance for years and is not flashing imminent economic problems with changes in your buying patterns? Great, because you are about to be punished! With new legislation pending to eliminate abusive practices among many credit card companies – from retroactive changes, big rate hikes for relatively short delinquency periods, hidden fees, instant demands for immediate repayment, dropped account maximums without notice, hair-trigger-sensitive late charges, cancellations for what seem to be unexplained reasons, and recent Federal Reserve rule-making to stop the practice of unexpected and unannounced rate increases – even the good credit card customers will find it more expensive to charge their purchases. As more and more credit card customers are being dropped in a sea of rising defaults, and as Congress presses for a more uniform and regulated approach to how consumers are treated by the lenders, banks are looking for ways to “make up the difference.”

Oh yeah, consumers should shudder at a fairly well-developed “impaired credit world” profiling criteria that most credit card companies use to determine who is most likely to become a default statistic. They look at the kind of purchases you make (low grade motor oil versus quality brands), where you spend your money (low-end discounters versus mainstream retailers) or signs of a change in your social status (baby registries show responsibility; paying a marriage counselors suggest a catastrophe). And that information is handed over to collection agents to deal very specifically with individual consumers. Even consumers who are not in default are contacted to accelerate payment if sufficient delinquency indicators are present. But the world is about to change for even the best customers.

Those lower rates, frequent flier programs, added insurance benefits, cash-back programs, bonus points and annual fees you see being handed out to attract the better credit risks… well, if you believe the credit card companies facing new stiffer regulation, the companies are focusing on what they still can do after the new law passes – a virtual certainty; the House passed the bill already, and Senate voted for the bill, 90-5 on May 19th, and the House followed the next day, 361-64. After a short trip through the Congressional reconciliation process, it is expected that President Obama will sign the bill by Memorial Day. OK, a little amendment allowing visitors to national parks to carry guns attached as an amendment to the legislation may have carried the support to such exceptionally high levels.

Even with the new law, credit card companies can, with advance notice, still raise rates (albeit at a slower pace under the new law), charge interest from the instant you buy, eliminate grace periods, reduce the number of customers they will keep, charge annual fees and eliminate one or more of the goodies described above. And trust me, this process of change is already being implemented. Credit cards will be fewer in number, have new limited thresholds and cost more. Pricing will be much more uniform across the range of consumers.

The May 19th New York Times: “Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit… ‘It will be a different business,’ said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. ‘Those that manage their credit well will in some degree subsidize those that have credit problems.’” It’s the American story in this managed depression: when the big guys screw up, one way or another, the little guys pay up.

Of course, the simple reality is that Americans should be borrowing a whole lot less – it’s what got us into the mess in the first place – but for many “safer” credit card customers, their use of a credit card was just cash flow management. Debit cards are always riskier, have fewer defenses if a seller engages in unsavory practices, and pose a huge risk in theft in general and identity theft in particular. And who carries a check book around anymore? Try and make an online purchase with a check and see how that works.

The plain fact is that the world around us is in the process of being reset; whatever happens and wherever we go from here will start from a new platform of lower expectations, downsizing and, for most, a permanent reset in lifestyle. We will retire later, live at a reduced level and be able to afford less. In this period of change, we may rediscover who we really are, stabilize, and maybe we can prove to the world that their predictions of the demise of America are misplaced. These forces can combine to create a lean, mean, competitive American machine, environmentally responsible with our perpetual ability to reinvent ourselves and our place in the world.

I’m Peter Dekom, and I approve this message.